Suitors on verge of walking away from Severn Trent bid

The Canadian-led consortium trying to buy Severn Trent is on the verge of
walking away after its latest £5.3bn proposal for the water utility was
rejected.

Severn Trent’s board rejected the most recent pre-conditional offer of £22 a share — a 41pc premium to the utility’s regulatory capital value at the end of March — within seven hours of it being tabled on Friday lunchtime.Photo: PA

The consortium, made up of Canadian infrastructure investor Borealis, the Kuwaiti Investment Office and the UK Universities Superannuation Scheme, is understood to be frustrated atthe speed of the FTSE 100 company’s rejectionof its latest offer, its third in a month.

Severn Trent’s board rejected the most recent pre-conditional offer of £22 a share — a 41pc premium to the utility’s regulatory capital value at the end of March — within seven hours of it being tabled on Friday lunchtime.

Sources indicated that the LongRiver consortium is concerned that the water company’s board, chaired by Andrew Duff, is refusing to engage with it and appears to be holding out for a higher offer without explaining why.

Apart from a 30-minute meeting following the consortium’s initial approach on May 14, there has been no meeting between the principals of the consortium’s investors and the company’s board.

Although there has been significant communication between advisers for the two sides — led by Deutsche Bank for the consortium and Rothschild and Citigroup for Severn Trent — the lack of face-to-face contact is understood to have aggrieved the suitors.

Under Takeover Panel rules, the consortium must make a firm offer by 5pm on Tuesday or face a six-month period of purdah during which it cannot make a return approach.

Sources indicated that it is now highly likely that the deadline will pass without a further offer being made.

“Having being rejected again outright, there’s a growing sense among the members that they’ll walk away,” said a source.

Although the consortium is understood to have realised the £22-a-share offer was not enough to guarantee the board’s recommendation — one of two preconditions set by the consortium — it had hoped it would have at least led to open dialogue and the ability to carry out due diligence.

The speed with which the revised offer — some 3.5pc higher than the last approach, on May 31 — was turned down is also said to have angered the suitors.

In its rejection of Friday’s approach, Severn Trent’s board said in a statement that the latest proposal “continues to fail to reflect the significant long-term value of Severn Trent or recognise its future potential”. The board said that the approach was at a 20.5pc premium to its share price the day before the announcement of LongRiver’s interest.

It is known that despite having said publicly that it is unwilling to table a hostile bid, the consortium has informally attempted to encourage Severn’s shareholders to persuade the board to open talks. A number of Severn’s investors spoken to this weekend, however, indicated that the price needed to be higher for a bid to succeed.

One source suggested the reason for the mismatch between what the two sides think the company is worth is because the consortium appears to be basing its calculations on recent acquisitions in the sector which have involved private companies, rather than public investors.

Severn Trent is one of only three British water utilities which remain quoted on the London Stock Exchange; the others are United Utilities and Pennon. All sides declined to comment.